All shares & mutual fund purchases will attract a stamp duty of 0.005 per cent

Effective July 1, all stocks and mutual fund purchases will benefit from a 0.005% stamp tax and any transfer of securities (MF units) will be subject to a 0.015% stamp tax.

Last year, the government made changes to the stamp tax law by introducing a uniform stamp tax rate on trade in stocks and commodities. While all categories of mutual funds (except ETFs) will attract stamp duty for the first time, stocks purchased by individuals on the stock exchange have been subject to stamp duty at different rates by respective states.
Although the execution of the same was scheduled for January 9, 2020, it lasted until April 1, 2020, and then again until July 1, 2020.

Here’s a look at what it means

The stamp duty will apply to all transactions, including stocks, debt securities, commodities, and all categories of mutual fund plans.
As for mutual funds, it will be applicable to all new purchases, including new monthly purchases in previously registered systematic investment plans.
It will also apply if investors move from one plan to another and also in case of reinvestment of dividends.
Transferring units from one demat account to another, including market / off-market transfers, will also attract stamp duty.

The impact on the retail investor’s long-term investments is minimal. Since stamp duty will be charged as a one-time fee, if an investor invests Rs 1 lakh in a mutual fund or stock system and holds it for two years, they will have to pay a fee of only Rs 5.

In fact it will be slightly lower Because stamp duty is applicable on the net value of the investment, that is, the gross amount of the investment, less than any other deduction, such as transaction costs.
There is no duty at the time of redemption. However, the impact is greater for investors with a short-term investment horizon, such as banks and companies that invest in liquid, day-to-day mutual fund plans.
Although the flat rate is only 0.005%, if an investor has an investment horizon of only one month, the annualized cost would increase to 0.06%.
If the investment horizon is one week, the annualized impact cost would be 0.26% and in a one-day investment horizon, the cost is 1.82%.
It will also have an impact on the purchase of shares by individuals in various states where the previous rates were lower than the new fixed rate of 0.005%.

During the fiscal year 2019-2020, the mutual fund industry mobilized global funds of more than Rs 188 lakh crore. Much of this amount was in overnight funds or liquid funds.

A stamp tax of 0.005 percent on this amount equals Rs 940 crore. If the industry continues to raise funds up to Rs 190 lakh crore or more, it will generate revenue of almost Rs 1,000 crore for the government from mutual fund transactions.
NSE’s annual turnover in fiscal year 2016 was 89.98 lakh crore. A stamp tax of 0.005 percent on this would mean a total tax of almost Rs 450 crore according to the new rates (different previous states applied different stamp taxes on the purchase of shares).